New Fund Family Off to Strong Start

Backed by a super track record as the former manager of a small-stock portfolio for the Govett Funds, Van Wagoner got his own fund group afloat in January, just in time to catch what has been a strong tail wind for small companies this year.

The Van Wagoner Emerging- Growth Fund, the flagship portfolio for the new family, gained a blistering 49% during the first four months of 1996.

"The Van Wagoner funds have surged to the fastest start I can remember in my 23 years of professional fund watching," says Sheldon Jacobs, publisher of the No-Load Fund Investor newsletter in Irvington-on-Hudson, N.Y.

The three no-commission Van Wagoner funds ([800] 228-2121; $1,000 minimum) have already attracted a lot of attention--and more than $500 million in assets. The largest of these is the Emerging-Growth Fund, which most closely resembles the Govett Smaller Companies portfolio that Van Wagoner used to manage.

The new family's two other portfolios are Van Wagoner Micro-Cap, which invests in small corporations worth less than $350 million, and Van Wagoner Mid-Cap, which targets companies of $500 million and up. These two funds rose 34% and 35%, respectively, from Jan. 1 through April 30.

Meanwhile, Govett Smaller Companies has lost 20% of its assets since Van Wagoner left and has seen its performance plummet.

Normally, it's a bit dicey to invest in a new fund family, but Van Wagoner, 40, has earned a reputation as an astute stock picker, with a specialty in newly public companies

"He's an incredibly savvy and aware investor," says Shirley Binder, president of the Masters Investment Group in Phoenix. "He knows Silicon Valley like the back of his hand and has been able to unearth some stellar opportunities."

From March 1993 through December 1995, Van Wagoner guided Govett Smaller Companies to an annualized return of nearly 55% over that stretch, capped by a 69% surge in 1995.

His investment approach is built around growth, pure and simple. He looks for small companies that have developed a leading-edge product or service that's in the process of winning market share. He favors firms that are posting yearly revenue or profit gains of 20% or more, and he restricts himself to companies that, in his view, have capable management.

"At small companies, one to four senior managers can make all the difference," Van Wagoner says.

He also spends all of his research time evaluating companies, without trying to time the stock market.

"I couldn't even tell you what the Dow is doing most of the time," he quips.

As should be clear with a manager who gained nearly 55% annually over a three-year span, Van Wagoner's approach isn't for the faint of heart. The stocks in which he invests can be quite volatile, and he trades actively, which tends to drive up shareholder-borne costs.

Govett Smaller Companies exhibited a very high turnover, or trading rate, which means that shareholders received sizable, taxable capital-gains distributions each year. Because Van Wagoner's style is tax-inefficient, Binder suggests holding the funds in an individual retirement account. Conveniently, the minimum IRA investment in any of the Van Wagoner funds is just $500.

A New Jersey native who graduated from Bucknell University, Van Wagoner cut his stock-picking teeth in the trust department of First American Bank in Washington, then moved to Flagship Bank in Miami and Bessemer Trust in New York. After 10 years at Bessemer, he switched to Govett in 1993 and landed in San Francisco, where he is based today.

As head of his own fund family, Van Wagoner now must spend time on administrative tasks, which he was not concerned with at Govett. Some renowned stock pickers have had trouble making this transition, but Van Wagoner is confident that he will be able to handle the expanded role.

He still spends most of his workweek--from 5:30 a.m. to 4 or 5 p.m., plus Sunday afternoons--picking stocks. But he also adds a couple of hours in the late afternoon or early evening on other chores, including administrative tasks.

"My significant other gets upset when I put in more than 75 hours a week," he says.

But Van Wagoner doesn't bemoan the extra time demands of running his own fund family.

"In investigating and investing in entrepreneurial companies, one thing I heard over and over was how fun it is to develop your own idea," he says.